Lifestyle Inflation is a Disease – Here are 5 Symptoms

Lifestyle Inflation Hit Us Hard

If I had been more conscious of the symptoms of lifestyle inflation in my early and mid 20s, this blog might be called Millionaires by 2025. Instead, I was stricken by the disease of lifestyle inflation and I didn’t even realize it.

Lifestyle inflation (sometimes referred to as lifestyle creep) is the process in which your spending increases little by little over time as you bring in more income. It puts you in a perpetual hamster wheel, unable to get off because you have to keep working to pay for the (ever increasing) lifestyle you are accustomed to.

5 years ago, I had no idea what the signs and symptoms were. Had I known I might have done something about it much sooner. Here are 5 common symptoms of lifestyle inflation that I was exhibiting, and maybe you are too.

#1 – You eat more meals in restaurants than you did 3 years ago

Eating out is really convenient, I get it. Before my wife and I got serious about our spending and saving, we ate out (or ordered in) over 15 meals per week. When we look back at bank statements from when we first got married, dining out was a rare treat. As my promotions and raises came in, the number of home cooked meals eaten decreased. At a time when our expenses were very low, and our ability to save was high, our money went to restaurants, bars, and video games (nearly $2,000 in one year alone).

I’m defining a meal as 1 person’s food out. So if I went out to eat with my wife, I count it as 2 meals.

Today, we are eating more home cooked meals. Dinner out is a much more special occasion for us because it occurs more infrequently. Without checking our bank accounts, I would estimate that we average about 4 meals out per week. That counts the occasional time we eat out for lunch/breakfast (separately) during the week, and 2 meals for going out to dinner together once.

#2 – Your savings rate has not increased with your income growth

I’m very fortunate to work for a company that gives annual performance raises. I usually get ~3.5% each April (in 2019 it’s estimated that the average raise will be 3.1% [source]). If I factor in my raises from promotions, my annual income has increased, on average, 18.82% per year over the last 8 years. A staggering amount that I probably won’t see until I get promoted again (which isn’t in the near future).

In one of my first posts I outlined where we could have been if I had banked my raises. Because my retirement accounts are currently hovering above $150,000, it is obvious that very little of my early raises went towards saving for retirement. Since 2012, my income has more than doubled. If I was banking a high percentage of my raises, our savings rate should be well north of 50%. Spoiler alert – It’s not. Our saving and donation rate stands at ~23% of our pre-tax income. I’m proud of that figure, but also well aware of where we could be if we had a savings and donation rate that were double what they are today.

In 2015, our retirement accounts stood at $52,342.49. 3 years later they have tripled to over $156,000. The lifestyle inflation that we succumbed to for the first 6 years of our marriage kept us from nearly triple what we have today.

#3 – You already have your next raise/bonus “spent”

As I mentioned above, my company provides annual merit increases each April. Around the same time, they pay out bonuses that begin to become very substantial at the manager level and up (assuming solid company and employee performance). In 2015 my bonus was around $22,000 and long before I even knew exactly how much it was going to be, we had already “spent” it all.

Later that summer we were going on a once in a lifetime vacation. So, the post-tax amount I received (~$13,000) was going towards that one vacation (covered a little more than half of the costs). Exactly $0.00 was going towards savings, retirement, home improvement, etc.

Throughout my career I justified buying things because I knew I was getting my raise or bonus soon. Buying the various subscription plans and boxes that we have had was easier because they would just be 1/3rd of my raise. (Check out my post about monthly subscriptions here).

Today my bonus goes towards our Roth IRAs and our kids’ 529 plans. What is leftover goes into savings or is invested. Each April, when my annual raise comes, I don’t even let it hit our checking account. I automatically divert 90% of the extra money to our Ally savings account. If I don’t see it (I only check it for net worth updates) I won’t spend it.

#4 – The budget you used to follow is no longer good enough (excluding major life events)

Having and keeping a budget can be a canary in the coal mine to knowing if lifestyle inflation is creeping up. Unfortunately for us, we looked at our ever increasing budget as a natural phenomenon. Each month we were over spending on food, groceries, dining out, leisure spending, etc. Our typical response was to “try” to rein in our spending in that area, but eventually adjust the budget up slightly. If our budget was originally at $200, we might spend $400 for a few months. Our conclusion was to try to spend less but increase our budget to $325. It’s how we became OK with spending $600+ per month on dining out in just a couple of years.

Eventually we stopped going out 4 nights a week. We realized that we didn’t need to spend $9 for a glass of wine when there are great, local wines that we can have for $3 per glass. And time with friends was great whether we were out at a bar eating and drinking marked up food, or at one of our homes eating and drinking MORE for much less $$$.

#5 – You receive packages from Amazon and have no idea what is in them

Of the nearly $25,000 we spent with Amazon over the last decade+, we had a lot of orders that came in and we had no idea what they were. Talk about the epitome of wasteful spending. To buy something that you completely forget about in the two days it takes for it to arrive. Or, because you are ordering things so frequently, you aren’t sure which item(s) is being delivered.

This was me for a long time. I won’t go too much into it because it was covered in much greater detail in this post. The charts in that post show lifestyle inflation that really exploded in 2013, after I was promoted to a manager position. And the Amazon spending was just one aspect of the lifestyle inflation that was happening in the other areas of our life. It is crazy to think how much more our spending would have increased if we never started to get it into check.

The Bottom Line

It is OK to enjoy some benefits that your hard work has earned you. But it is important to put away some of that money to savings. Your emergency fund (if you chose to have one) should be increasing as your annual spending increases. Another part of that raise/bonus/windfall should go towards your retirement. Most important of all, just know where the money is going.

We have 4,225 days to hit our goal. No doubt we are going to spend every single of those days fighting against lifestyle inflation.

What about you? Do any of these symptoms ring true to your spending habits? What are other ways to early diagnose lifestyle inflation? How do you keep yourself from letting lifestyle creep take you over?

One thought on “Lifestyle Inflation is a Disease – Here are 5 Symptoms”

I’d argue that anyone who experiences zero increase in their standard of living from being a starving student to being a fully employed adult deserves an intervention and not praise. However it isn’t a matter of zero lifestyle inflation versus going insane with spending. We practiced a very low rate of improvement in our lifestyle. We invested most of every raise and bonus but not all, we had a little celebration, and as we added three kids to our family we spent more feeding and caring for them. But we did reach financial independence by living just as you recommend in this post, it is good advice! Actually what we spend now as retired millionaires now is not much more, if you correct for inflation, than what we spent in our twenties. Once the house is paid off, the kids are off the payroll and you have zero debt then your costs go down.